Washington (Jan. 12, 2004) -- An Internal Revenue Service directive that companies flag returns submitted through its Free File Alliance has prompted one vendor-member to pull out of the consortium, while industry giant Intuit says it won't comply.

The Free File Alliance was launched last year as a public-private partnership between the IRS and tax preparation software companies with the goal of increasing the number of people who file their taxes electronically by offering free tax prep services to certain taxpayers. Last year, 53 million returns were filed electronically, out of nearly 132 million returns. The Free File Alliance accounted for 2.8 million.

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